A pivotal few months is ahead for gold developer Ausgold and its large Katanning project in Western Australia.

Katanning is the largest undeveloped open cut free-milling gold project in WA and one of only a handful of gold development projects of scale in Australia.

Ausgold is currently putting the finishing touches on a definitive feasibility study for Katanning, 275km southeast of Perth.

The company completed a prefeasibility study into a 3 million tonne per annum operation in 2022 but last year, released a scoping study into a 5Mtpa option, given the sale of the resource.

The study forecast capital costs of A$297 million and a 10-year mine life at a production rate of 136,000 ounces per annum at all-in sustaining costs of A$1549 an ounce.

Using a $2750 an ounce gold price, the project was forecast to deliver life-of-mine revenue of $3.64 billion, EBITDA of $1.63 billion and post-tax free cashflow of $770 million.

The study returned a post-tax net present value of A$541 million, an internal rate of return of 46% and a payback period of 20 months.

Upside

The most obvious upside to the project is the dramatic improvement in the gold price to more than A$3500/oz.

Since the release of the scoping study, Katanning’s resource estimate has been updated from 2.64 million ounces of gold to 3.04Moz at a grade of 1.06 grams per tonne.

“We’ve built a much more robust geological model so in terms of resource geology risks, we’ve lowered that,” Ausgold managing director Matt Greentree said.

Euroz Hartleys analyst Mike Millikan said the updated resource could imply a reserve of 1.7Moz, up from the maiden reserve of 1.28Moz reported last year.

“We now see opportunities for the KGP to produce closer to 200,000oz, and sustain circa 150,000ozpa over a longer production period,” he said.

Greentree said the DFS would focus on trying to keep the capex modest while delivering strong financial outcomes.

“This orebody has a few nuances to it and one of the more positive ones is that there’s a period of much higher grades early on during the life of mine,” he said.

“Some of our thinking at the moment is looking at an initial development with an expansion expectation during the life of mine, so there’s a bit of work going on in the background there.”

Strong support

Earlier this week, Ausgold announced that it had entered into an agreement with its largest shareholder, Dundee Resources, and new institutional investors Arlington Group Asset Management and nominees of SCP Resource Finance, to raise A$3 million via the issue of unsecured loan notes.

The funding allows Ausgold to finalise the DFS and embark on a drilling program at the high-priority Duggan and Stanley targets, 25km from the main project.

“The support coming from Dundee is really on the back of a lot of internal due diligence – they’re really excited by the project,” Greentree said.

“With them sort of putting their shoulder to the wheel a bit, I think it’s a massive positive, and they’ve really done a lot of work to support what we’re saying publicly as well as what we’re doing internally, so they’re all behind us and can see the value of what this project will deliver.”

Ausgold also enjoys strong community support, which bodes well for the permitting process.

Striking similarities

One of the more interesting points of this week’s funding announcement was a quote from Dundee CEO Jonathan Goodman.

“Ausgold today is where Capricorn [Metals] was with its Karlawinda gold project circa 2020 except Ausgold’s Katanning project is bigger, higher grade with double the tenure and better infrastructure,” he said.

Fast-forward four years and Karlawinda is considered one of Australia’s most profitable gold mines with its strong performance catapulting Capricorn into the ASX 200.

While March quarter production at Karlawinda was impacted by heavy rainfall, the mine produced 26,017oz of gold at low AISC of A$1515/oz and is set to produce 112,000-115,000oz at AISC of A$1270-1370/oz for the full 2024 financial year.

Positioning for development

Ausgold has already taken a step towards the development phase with the acquisition of 1000 hectares of farmland that hosts the bulk of its resource.

Last month the company appointed well-regarded mining engineer Mark Turner to its board.

Greentree says there’s more to come.

“There’s a couple of announcements coming that I think will be important for the strategy of the company – keep an eye out for those in the next week,” he said.

“I think that’s going to be an important inflection point, hopefully, for the share price as well the company and the asset getting taken seriously in the market.”